What it means
Robert Shiller's CAPE ratio uses the 10-year average of inflation-adjusted earnings instead of trailing 12 months. The smoothing reduces the impact of business cycles and gives a long-horizon valuation signal.
Why it matters
Shiller P/E has historical correlation with subsequent 10-year returns. Levels above 30 have generally preceded poor decades; levels below 15 have generally preceded great decades.
How to use it
Use as a strategic asset allocation input, not a tactical trading signal. CAPE has been elevated for over a decade - getting timing wrong with this single signal has been costly.
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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